The FT says persons familiar with the matter has told them that private equity outfit KKR has dropped plans to buy BHP Billiton's Canadian diamond mine.

It raises "questions about demand for such assets, just as peer Rio Tinto starts work on a potential sale of its diamond division," the paper reports.

BHP Billiton, the globe's biggest mining company, in November launched a review of its diamond operations with an eye to selling assets including Ekati, Canada’s oldest diamond mine.

Valuations for the mine have been very far apart with some saying it's worth as little as $300 million while others peg it at $1.2 billion.

Rio Tinto followed in March saying it is rethinking its gems business.

Rio operates three diamond mines including Argyle in Australia, Diavik in Canada's far north close to Ekati and Murowa in Zimbabwe. The miner also has an advanced diamond project in Bunder, India.

The diamond business may simply be too small for the mining giants. Rio Tinto's diamond mines contribute less than 2% to its earnings and its a tiny proportion of BHP's income as well.

On top of that the profit margins for the gems, compared to say iron ore which sits at a more than comfortable 70% in Rio Tinto's case, is too snmall.

Nevertheless, the titans would be exiting a market where fundamentals continue to improve.

Rough-diamond prices rose 24% in 2011 building on strong gains during the two preceding years.

Supply is tight – Diavik and Ekati were the last major diamond discoveries but that was in the early 1990s. Diavik is Canada largest diamond mine while Ekati supplies roughly 10% of the world's diamonds by value.

And Ekati's best days are behind it – its remaining life could be as short as eight years.